Has Middle Class America Been Fleeced?

Hunter Lewis, Against Crony Capitalism

Noah Smith, writing in Bloomberg, says that it has indeed been fleeced by our national economic policies. We agree. But which policies have been responsible?

Smith mentions and immediately dismisses trade, immigration, economic regulation, and welfare policies. The real villain in his view is an alleged turn toward managing the economy on free market lines: “Your prosperity was taken by the very people who promised to ensure and enhance it. The decades from 1980 through 2008 were the age of neoliberalism — the ideology of the free market.”

This is a story that we hear more and more. Neoliberals, the favorite new epithet on the left for free market exponents, have ruled the roost for decades ( note how the Obama administration is simply ignored in the preceding quote), and have left the poor and middle class far worse off than they were.

The truth is that the Bush-Clinton-Bush-Obama era had much in common, and it was not free market principles. It was an era of unrestrained crony capitalism, in which special interests formed stronger and stronger alliances with government in order to secure economic monopolies and other privileges.

It was also, not coincidentally, an era of repeated boom and bust, as the Federal Reserve and other central banks created immense amounts of new money to keep the crony capitalist game going. The Fed did not create all the new money to help the poor and the middle class. They did it primarily to support the government debt machine, which they worried was on the verge of collapse in 2008. The result is that government debt has now doubled in the few years since then.

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In Search Of History

Thanks to "bracket creep," the inflation of the 1970s pushed millions of taxpayers into higher tax brackets even though their inflation-adjusted incomes were not rising. To help offset this tax increase and also to improve incentives to work, save, and invest, President Reagan proposed sweeping tax rate reductions during the 1980s. What happened? Total tax revenues climbed by 99.4 percent during the 1980s, and the results are even more impressive when looking at what happened to personal income tax revenues. Once the economy received an unambiguous tax cut in January 1983, income tax revenues climbed dramatically, increasing by more than 54 percent by 1989 (28 percent after adjusting for inflation).